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Court of Appeal Considers “Own Work” Exclusion Again
Published in the April 2008 issue of Litigation Notes - View Article
Synopsis: Damages caused to a foundation by a contractor were recoverable under a CGL policy because the foundation was the property of a third party and the contractor was not simply remedying its own defective workmanship
The Ontario Court of Appeal recently examined the question of when commercial liability insurance will cover negligent construction work.
Bradsil Leaseholds Ltd. was the general contactor for a condominium building which was damaged as a result of negligence in the construction of the foundation. Bradsil could not satisfy the judgment in a negligence suit by the condo owners, so the owners sued Lombard, which had insured Bradsil under a commercial general liability (CGL) policy. Lombard defended the claim on the basis that CGL policies are intended to cover accidental damage to the property of third parties. They are not intended to serve as performance bonds for the cost of repairing deficiencies in the insured party’s own work product. This exception to coverage is referred to as the “own work exclusion”.
The Ontario Court of Appeal agreed with the court below which found Lombard liable for the cost of fixing the foundation.
In the court decision appealed from, Bradsil was found to have been negligent both in damaging the aquifer below the building during the initial excavation, and then in failing to properly repair the damage. While excavating the foundation, Bradsil punctured the aquitard, a layer of clay soil that prevents the waters of the aquifer below from permeating up into the layer of soil containing the foundation of the building. Bradsil agreed to install a dewatering system to rectify the problem. However, it failed to install the system according to the soil expert’s designs. It did not ensure that a filter blanket beneath the building was continuous so as to avoid loss of soil, and did not equip sump pumps with filters to prevent soil from pumping away along with water. As a result, the defective dewatering system pumped away silt and sand from beneath the building for several years until the garage started sinking. Investigation revealed that the removal of soil created large voids beneath the building which left column footings hanging in the air without soil support causing damage to the foundation. The unit owners were evacuated for several months until $7 million of repairs were completed.
The first issue addressed by the Court of Appeal was whether the damages awarded against Bradsil related to compensation for property damage suffered by third parties, rather than the cost of remediating defects in Bradsil’s own work product. The Court agreed that damages for repair of Bradsil’s own work would be excluded from coverage. In finding for the condominium, the Court reasoned first that the term “foundation” has a dual meaning. It could mean the structural components constructed to anchor the building, or to the compacted soil that forms the natural base upon which the building is erected. The court then stated that the consequence of Bradsil’s faulty workmanship was that the dewatering system removed the building’s natural foundation leaving the garage footings unsupported. The natural foundation was the property of the third party owners of the building. As a result of the error, the structural columns that formed part of the structural foundation were damaged by erosion. The Court of Appeal accepted the finding of the court below that the structural components were not defective when they were constructed, Therefore, Bradsil’s faulty workmanship also damaged part of the properly constructed foundation, which by that point in time had become part of the property of a third party. Consequently the Court concluded that compensation was not awarded for remediating Bradsil’s work product. York Region Condominium Corp.
No. 772 v. Lombard Canada, 2008 ONCA 272 (CanLII)